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Vertically Integrated North–South Trade and the Redux Model

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  • Juan Antonio Garcia‐Cebro
  • Ramon Varela‐Santamaria

Abstract

The paper uses the framework of Obstfeld and Rogoff's Redux model to study the impact of monetary shocks on exchange rate, terms of trade, and welfare in the context of a North–South trade. The authors show that a relative Northern monetary expansion can depreciate or appreciate its currency depending on whether the consumption elasticity of money demand and the degree of monopolistic distortion are low or high enough. This shock has asymmetric effects on welfare in such a way that “beggar‐thyself” or “beggar‐thy‐neighbor” effects always occur.

Suggested Citation

  • Juan Antonio Garcia‐Cebro & Ramon Varela‐Santamaria, 2004. "Vertically Integrated North–South Trade and the Redux Model," Review of International Economics, Wiley Blackwell, vol. 12(4), pages 643-661, September.
    • Handle: RePEc:bla:reviec:v:12:y:2004:i:4:p:643-661
    DOI: 10.1111/j.1467-9396.2004.00472.x
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    References listed on IDEAS

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